Observations and provocations from The Times' Opinion staff

Campaign 2012: Rick Perry picks a fight with Ben Bernanke

August 16, 2011 | 11:25
am

Texas Gov. Rick Perry was asked a question he evidently has no business answering, which probably means he has no business running for president. Queried about his views on the Federal Reserve and Chairman Ben S. Bernanke, Perry replied:

If this guy prints more money between now and the election, I don't know what you would do with him. We would treat him pretty ugly down in Texas. Printing more money to play politics at this particular time in American history is almost treacherous -- or treasonous in my opinion.

Right.

An equally political but more apt response would have been that as president, Perry would not nominate Bernanke in 2013 to a third term as Federal Reserve chairman. But that assumes Perry knows what he's talking about. My guess is that if someone had asked the follow-up question his shoot-from-the-hip riff on Bernanke demands -- "What do you think the Federal Reserve is, governor?" -- Perry would strain for an answer.

And as for "printing money," the Federal Reserve made clear last week that it is unlikely to do anything but keep interest rates historically low until 2013, an indication that another round of quantitative easing is basically off the table. But if the economy takes a nosedive into a double-dip recession, it's hard to imagine that Bernanke and the Fed wouldn't respond by using the monetary tools at their disposal.

Bear in mind that in his previous career as an academic, Bernanke's specialty was monetary policy during the Depression. There's long been a debate among economists about the role the central bank played in that fiasco, with some arguing that the Fed's easy-money policies in the 1920s contributed to the financial industry's problems, and others (notably conservative icon Milton Friedman) saying the Fed's attempt to ratchet up interest rates later in the decade actually triggered the Depression.

Bernanke hews to Friedman's view. He also blames the country's adherence to the gold standard for prolonging the Depression, as well as the mistaken belief by the Fed's leaders that seemingly low interest rates meant that money was easy for borrowers to obtain. To the contrary, money supplies plummeted in the early years of the Depression, as did consumer prices. That's another way of saying that money was tight, regardless of what nominal interest rates were -- much like the situation in the past two years, when lending volumes have been low despite rock-bottom rates.

In short, Bernanke clearly believes the Fed blew it during the Depression, sitting on its hands instead of trying to stop the supply of dollars from shrinking so drastically. Today's Fed doesn't have as many arrows left in its quiver -- it has already pushed short-term interest rates to zero. That leaves mechanisms like quantitative easing, also known as printing money. So if the Fed engages in another round of that, you can bet it will have everything to do with Bernanke's sincere desire to avert a second Depression -- and nothing to do with keeping President Obama in the White House.